Some US consumers may see high power prices for next several winters: report

Washington (Platts)--22 Jul 2014 344 pm EDT/1944 GMT

Electricity consumers in the US Northeast and Mid-Atlantic regions could see higher-than-average prices for the next several winters if last winter's bitter cold is repeated until additional natural pipeline capacity into the region is brought into service, competitive energy retail supplier ConEdison Solutions said in a new report.

ConEdison Solution, a unit of New York-based utility Consolidated Edison, said the polar vortexes that blasted the Northeast and Mid-Atlantic with sustained periods of brutal cold during the 2013-2014 winter led to a spike in the price generators paid for natural gas. The increase was largely due to inadequate pipeline capacity, the report said.

Gas-fired power generators, forced to buy gas from the spot market to deal with shortages, paid prices that were in some cases 878% higher than the 12-month average, the report said, adding that gas prices at the the Algonquin Gas Transmission city-gates in New England hit a high of $75.48/MMBtu on January 22, compared with the 12-month average of $8.60/MMBtu.

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"Any proposed project to provide relief by reducing pipeline constraints will likely take years to complete, so consumers exposed to energy markets over the next few winters should expect higher-than-average prices during those months," the white paper said. "Whether prices will be higher or lower than this winter will depend on a number of factors, including the severity and duration of cold weather."

Last winter's cold also challenged the reliability of the electric grid, prompting PJM Interconnection to issue several warnings and requests for curtailment in January. Consumers were asked to conserve electricity and real-time power prices skyrocketed to $1,800/MWh during certain hours, a 2,798% increase above the $64.33/MWh 12-month average, the report said.

"The unexpected extremes of the Polar Vortex reminded us that energy users need to be vigilant," Richard Rathvon, vice president at ConEdison Solutions, said in a statement Monday. "In a marketplace that often defies prediction, the energy consumer needs to fully comprehend the range of risks and benefits that may be associated with the contracts they sign."

Consumers paying variable market-based prices for their electricity saw the biggest spikes, but even some with fixed price contracts ended up paying more than expected.

Those served by "smaller, less-financially stable suppliers" that went out of business when the record-setting costs hit "were dropped back to their utility's default service," and often had to pay prices above their fixed price contract, the company said. Utilities usually pass cost increases through to consumers either as they are incurred or in future periods, the report said.

The report recommended that consumers understand the energy supply products they purchase, including how risk is shared between them and supplier and whether their contract has fixed prices or variable market-based prices.

The report argued for energy supplier transparency, putting the responsibility of informing consumers of their energy options and the differences, risks and benefits of those options on the supplier.